Janus Capital to Refund $31.5 Million to Investors

By RIVA D. ATLAS

Published: December 20, 2003

Janus Capital said yesterday that it would refund $31.5 million to investors because of improper trading in its mutual funds and that it would make several governance changes.

The restitution, however, does not resolve regulators' investigations of the fund company and is considerably less than Alliance Capital agreed to pay this week in both restitution and reduced fees in the future.

Mutual fund companies are taking such steps to restore confidence in their businesses three months after regulators began a broad-ranging investigation of their practices.

Several fund companies have approached New York's attorney general, Eliot Spitzer, and offered to cut their fees, on the heels of his settlement with Alliance, which agreed to reduce its management fees by an average of 20 percent. MFS Investment Management is in discussions to settle an investigation by Mr. Spitzer, and has expressed its willingness to cut its fees, people close to the negotiations said. The MFS offer was reported previously in The Wall Street Journal.

The attorney general's decision to press for lower fees has ignited considerable criticism, especially from the Securities and Exchange Commission, which has said it is reluctant to set fees for funds because it does not want to interfere in matters that it regards as best left to the markets.

Janus said the independent trustees of its funds had calculated that investors were owed $31.5 million as a result of frequent trading in and out of seven funds. The amount includes profits made by the rapid traders and the fees that Janus earned from the activity. When divided among those funds, the amount to be refunded would be around a penny a share, according to a report by the independent trustees.

The portfolios affected are Janus's High Yield, Mercury, Worldwide, Enterprise and Overseas funds, as well as its Adviser Worldwide and Adviser International Growth funds. The latter two funds are distributed through brokers.

Janus said it had not yet determined whether the money would be paid directly to shareholders or to the funds affected by the improper trading.

Ten investors traded rapidly in and out of Janus funds at times from November 2001 through the first half of this year, according to a report from the independent fund trustees. One investor accounted for most of this trading, the trustees said; they did not identify the investor.

Janus was one of four fund companies named in a settlement the New York attorney general reached in early September with Canary Capital Partners, a hedge fund managed by Edward J. Stern. The inquiry was into suspected improper fund trading. Since the Canary settlement, Janus's stock has fallen about 11 percent, although it rose $1.08 a share yesterday, to close at $15.91.

Janus also said that it would stop using brokerage commissions to purchase research or other services from investment banks, often called soft dollars. That decision will cost Janus $9 million, the company said.

Janus additionally agreed to tighten language in its fund prospectuses to discourage rapid trading, and said it would increase redemption fees from 1 percent to 2 percent on certain funds. Analysts said that the changes announced by Janus were positive, but that they were more interested in learning the results of the company's talks with the New York attorney general and the S.E.C.

''We just don't know what the fines will be,'' said Rachel Barnard, a stock analyst at Morningstar, a research firm. She noted that Janus was spending just a fraction of the amount that Alliance Capital agreed to pay as part of its settlement with regulators on Thursday. Alliance will pay $250 million, which will be used to compensate investors in its funds. It will also lower its fund fees at an estimated total cost to the company of $350 million.

Janus's chief executive, Mark Whiston, said yesterday in a statement that the changes did not resolve investigations by regulators. ''We anticipate that the regulators will seek to have Janus pay civil penalties and implement remedial actions,'' he said.

Janus had redemptions of $3.7 billion from its funds as of the end of November, according to AMG Data Services. The company had $147.5 billion under management as of the end of November.

Representatives of the S.E.C. and the attorneys general of Colorado and New York declined to comment; Janus has said all three of those offices are investigating its trading.

The Colorado attorney general, Ken Salazar, said on Thursday that he would delay taking action against the company because of its ''willingness to move aggressively to address both the market timing and corporate responsibility issues.''

Sun Life Financial, the Canadian insurance company that owns MFS, disclosed last week that staff members at the S.E.C. had recommended that an enforcement action be filed against MFS for false and misleading disclosures about market timing. Federal and New York State regulators were planning suits against MFS within weeks, a person briefed on the matter said.

But in a recent interview, Mr. Spitzer said that fee reductions were just one element of what he sought as part of settlements with the industry. ''Every case is viewed on its own merits,'' he said. A spokesman for MFS declined to comment.